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Defining Value as a Return on Investment (ROI)

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Tim Dodd
February 6, 2020

The term, “Return on Investment,” or ROI, is a common one in both the public and private sectors. In business, boards and executives are willing to spend sometimes high amounts of money to research new products or new approaches if they believe that these investments could yield ROIs.  Business ROIs are primarily financial, and the standard methodology for determining ROI is the current value of the investment divided by the cost of the investment. Investments can range from stock investments to new business locations to real estate transactions. Financial ROIs in a business setting influence decisions on the rollout of new products and expansion into new markets.

Governments also use financial ROI to determine whether building a new building, creating a new program or opening a library for more hours makes sense. But unlike business, governments are not driven by the same type of financial bottom line and as a result there are other ROIs to consider, such as efficiency and trust in government. In order to measure the efficiency ROI, governments must review processes, such as applying for a permit or license, to determine whether the actual processing time could shrink, thus making the process more efficient. In order to reach the efficiency ROI, many governments employ process improvement strategies to improve and reengineer processes.

Another ROI in government which can be much harder to define and measure is the value ROI. Many governments run programs for many years such as summer camps, training programs and neighborhood events. Often, the original reason why these programs started is lost with time and the employees who started them long since retired or moved on to other jobs. Even if the original reason for starting a program is not known, governments should be able to define the reason why the program exists. What need is it trying to meet? Who is the population served? Answering these questions will help ensure that programming drives towards the outcomes which connect to the reasons why the program exists. To answer these questions effectively, governments must be able to tie the function of a program to an organization-wide purpose.

To be able to establish the, “Why,” behind a program, governments must define values that they care about and are focused on, and must be able to connect the reason for a program with values of the government, which essentially are the reasons why the government exists. Doing this takes time and engaging the community and other stakeholders to determine the values that drive an organization and the outcomes it hopes to achieve. Often, governments establish formal strategic plans to identify values and outcomes with measures to ensure that they are on track and able to report on the achievement of outcomes.  While governments need to consider the amount of money being spent on a program, they also need to be able to connect the expense with the value of the program, if it can be connected to a defined outcome the municipality hopes to achieve. 

As an example, suppose a city realizes that they have a growing immigrant population and they decide to create a program designed to assist new immigrants in integrating into the community. This program includes culture events, organized group discussions and a play group for parents and children.  Additionally, the program provides office hours, with interpreters, designed to answer questions and provide assistance in filling out a variety of forms, ranging from signing children up for a recreation program to applying for affordable housing. Last year, 38 people participated in the program.

The City spent approximately $46,000 on the program, which includes the costs of food for events, staff time for planning and preparation, event facilitation and space rentals. This averages out to a cost of approximately $1,200 per person. If looked at through the cost ROI, the dollar amount seems high, especially considering that the city has a population of 124,000.

The City’s strategic plan includes an outcome called Connected and Engagement Community, with the statement, “A community that provides platforms and opportunities for all community members to feel connected and be engaged with other community members.” As part of performance based budgeting, the immigrant assistance program is mapped to this outcome. Staff track several metrics related to the program, such as the average processing time of housing applications and the percentage of participants who attend programs regularly.

These metrics are outputs, tracking the efficiency of the program. But, after participating in the program for six months, staff provide a survey to program participants. The survey asks, “Do you feel that the immigrant immersion program helped you to become a part of the community?” and ,“After participating in the program, do you feel like a member of the community?”  While the number of participants may not be high, the outcomes that are achieved for a small group of people are incredibly meaningful and fit into the defined values of the city.

Author: Tim Dodd is the Chief Performance Officer for the City of Santa Monica, CA, previously serving as the Performance Manager for the City of Baltimore and Director of Performance Management for the Commonwealth of Massachusetts. [email protected]

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The American Society for Public Administration is the largest and most prominent professional association for public administration. It is dedicated to advancing the art, science, teaching and practice of public and non-profit administration.

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